Trying to build your own investment portfolio from scratch can be a daunting prospect, but in reality its quite easy.
A key way to start search for opportunities is to search out stocks that fit into one of two groups: growth and income. Of course, shares that offer the perfect blend of growth and income are the best picks.
When it comes to income, Glaxo ticks all the boxes. At present levels the company offers a dividend yield of 5.1% and the payout is covered one and a half times by earnings per share. The long-term, defensive nature of Glaxos business means that it is perfect for any beginners portfolio, too.
Along with a range of pharmaceutical products, the company also produces a leading range of consumer healthcare products, such as toothpaste, mouthwash,Panadol, skincare products and even Horlicks. The essentialnature of these products means thatcustomerswill continue to buy from Glaxo day after day, giving the company a predictable income stream and base to grow from.
Unfortunately, due to Glaxos defensive nature and lofty dividend yield, the market has put a premium valuation on Glaxos shares. The company currently trades at a forward P/E of 17.3 but as an income play this premium is worth paying for Glaxos market-leading dividend yield.
As a growth play, Santander is a great pick. Now, usually Im not a fan of banks, but Santander has shown over the past year that it is not a normal bank. After Emilio Botn who ran the bank for 28 years died in September,the bank hasmade some drastic changes.
In particular, after raising $9bn in new capital and cutting its dividend payout, Santander is set to become one of Europes most liquid banks. By 2016 the groups tier one ratio, under Basel three standards, is expected to be in the region of 10% to 11% compared to expectations of 8% to 9% for peers.
A stronger balance sheet gives Santander more room to grow and benefit from economic growth within Latin America, and a return to growth within Europe. Management expect the capital raising to start contributing to growth by 2016.
Theres also the improving European economy to consider. Standard should benefit from increased business activity as well as a lower level of loan impairments throughout the rest of the decade.
City analysts expect Santanders earnings per share to expand at a mid-teens rate every year until 2017 thats growth worth paying for. At present Santander trades at a forward P/E of around 12, and based on the groups projected growth rate this indicates a PEG ratio of 0.9.
Unilever offers the rare combination of both growth and income. Further, just like Glaxo, Unilever produces and sells a range of every day consumer products and food, which makes the group a defensive pick thats well placed to generate long-term growth.
But just like Glaxo, Unilever is also expensive at present levels. The company currently trades at a forward P/E of 21.3 and supports a dividend yield of 3.2%.
Still, sometimes you have to pay a premium for quality and its worth paying extra for Unilevers defensive nature and long-term growth outlook. For investors who are just starting out in the stock market, you cant go wrong with Unilever.
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